Interested in ATVI?
Don't miss the next report.

Receive e-mail alerts for new research on ATVI

Success!
You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

On the same day as the Zynga announcement, Activision Blizzard (ATVI), maker of the Destiny and Call of Duty video games, raised its revenue and EPS guidance for fiscal 2015. It now expects fiscal 2015 revenues of $4.43 billion and EPS of $1.20. Earlier, the company had guided for $4.4 billion and $1.15, respectively. Activision Blizzard revised its forecast based on digital revenue growth, a business line that contributes 45% of its overall revenues.

Clearly, the video game market is on a roll.

Zynga shares rise by ~11%

Because the company exceeded analyst expectations and posted a smaller loss than was expected in 1Q15, markets pushed up the price of Zynga shares. Meanwhile, despite having beat analyst and market expectations, 1Q15 was not all good news for Zynga employees.

Along with its quarterly results, Zynga announced the layoff of 18% of its workforce, or approximately 364 employees. Yet it seems the company’s restructuring buoyed market sentiment. Zynga saw its shares rise by as much as ~11%, as the above chart shows, cheering its investors and shareholders.

Operating performance

The above chart shows that Zynga generated the majority of its revenue from online games in 1Q15. In this quarter, online game revenue grew to $148 million, an increase of 12% year-over-year and 10% on a sequential basis. Advertising contributed 20% to overall revenue in 1Q15. In 1Q15, advertising and other revenue stood at $35 million, a decline of 1% year-over-year and 39% on a sequential basis.

Here’s the percentage of online revenue generated by the company’s top online games:

FarmVille 2 – 20%

Zynga Poker – 19%

FarmVille 2: Country Escape – 16%

Hit it Rich! Slots – 15%

Zynga claims that its games are played by more than 1 billion people on leading platforms including Apple (AAPL) iOS, Google (GOOG) Android, and Facebook (FB). As well, it attributes 63% of overall bookings 1Q15 to the mobile games space, suggesting that its transition from Facebook games to mobile was the right call to make.

On May 5, 2015, Zynga peer Electronic Arts (EA) also announced fiscal 4Q15 and fiscal 2015 results. Wall Street was thrilled that Electronic Arts managed to exceed its own as well as analysts’ expectations. For more on this topic, please read Electronic Arts’ Fiscal 4Q15 Earnings Exceed Expectations.

If you’re bullish about the video gaming space, you might consider investing in the PowerShares QQQ Trust, Series 1 (QQQ) that invests about 0.35% of its holdings in Electronic Arts.